The widespread consumer adoption of digital music – 52% of all music revenue in the U.S. last year came from digital – changed the music world profoundly. Single song purchases on iTunes and free and subscription-based streaming services through YouTube, Pandora and Spotify are now the norm.

While album sales are no longer at the center of the music industry, unique Direct to Consumer experiences (D2C) have become more important than ever. Technology has helped D2C experiences and sales, enabling more personalized and better targeted campaigns, along with more direct interaction with a larger number of fans. While social media is incredibly important for engagement and reach, it has also created a significant challenge – how to drive and calculate ROI from these social initiatives.

The ROI of social in music

Anyone involved in marketing knows about the challenges surrounding social ROI, and marketers in the music industry are no exception – perhaps more keenly aware given the very social nature of their business. Music helped propel social media and consumer adoption more than any other industry. All but a few of the top 10 Twitter profiles are musicians and 50% of all Twitter users following at least one musician.

Both large and small independent artists offering free songs and content via MySpace, Facebook, and Twitter initially reaped the reward of larger, more engaged fan bases. However, these fans interacted with artists on social media because of the promise of valuable content and free D2C interactions, making the traditional methods of achieving ROI through selling backstage passes, exclusive albums and concert tickets more difficult.

It’s important to realize that social is not primarily a sales channel. Labels and musicians must leverage social channels to build fan communities and increase loyalty first. On Facebook and other channels, sales should be used as a tactic rather the underlying purpose.

Image 1: Brands need to use social media primarily as a loyalty channel, incorporating sales as just one of many tactics for achieving ROIImage

With loyalty as a core strategy, companies can work on unlocking the formula for social ROI which exists through gathering consumer information, garnering customer loyalty, driving sales, generating leads, and more.

Creating value for both fans and brands

As the largest record label in the world, Universal Music sits at the forefront of this digital battleground trying to create high value for brands through offering value to their artists’ fans. The most important tip in this endeavor is to make sure that the majority of social media posts are not sales posts. By posting sneak-previews, genuine messages from the artist, backstage pictures, and more, fans will then be primed and paying attention to the occasional social commerce offer. Even then, the offer must create greater value for fans than they can find elsewhere, and the offer itself must reach fans on their own ground – the newsfeed.

Universal artist Lady Antebellum focuses primarily on building fan loyalty through offering her audience sneak-peaks of music videos and taking advantage of more social technology like Rdio to share her favorite playlists.

Lady Antebellum also integrates exclusive social sales offers, such as her “Own The Night” flash sale, where she offered fans an exclusive bundle offer for a zip-up hoodie and an autographed photo. By combining the exclusive offer with social commerce apps that enabled fans to click through and complete their purchases within the newsfeed, the deal sold out in an hour, with 85% of sales going to new customers. Another flash sale in newsfeed that same night sold out in just 10 minutes, proving the value of social media as an effective sales tool when used intelligently.

Image 2: This flash deal successfully leveraged social commerce with an exclusive offer and point-of-impression sales in the newsfeedImage

A balancing act

Social media comes down to more than just sales ROI; Return on Fan provides a much better metric for success. Companies can benefit from the community building and research opportunities from social, while also carefully incorporating social sales without alienating fans.  In this new digital world, the days of relying entirely on album sales are gone – we must now meet fans on a more personal level, and social media provides one strong medium for forging those connections.

For tips and case studies on how to maximize your social media ROI, download our complimentary Ebook, 6 Best Practices to Get the Most from Your Facebook Presence.

How do you use social media? Do you have any particularly memorable success or failure stories with social commerce? Feel free to ask questions and continue the conversation in the comments below, or connect with me on Twitter.